eBook Calculator Compare Two Methods of Accounting for Uncollectible Receivables Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the company is considering changing to the allowance method Information is requested as to the effect that an annual provision of 12% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts: Year of Origin of Accounts Receivable Written Off as Uncollectible Year Sales 1 st 2nd 3rd 1st 2nd 3rd 4th $1,110,000 1,650,000 2,870,000 3,340,000 Uncollectible Accounts Written Off $1,000 2,800 12,500 16,350 $1,000 1,300 3,600 $1,500 2,900 3,750 $6,000 5,550 $7,050 Required: 1. Assemble the desired data. Enter a decrease in the amount of expense as a negative number and all other amounts as positive numbers. Call Systems Company Bad Debt Expense Year Expense Actually Reported Expense Based on Estimate $ 1,000 $ 11,100 Increase (Decrease) in Amount of Expense $ 10,100 X Balance of Allowance Account, End of Year 1.000 x 11,500 X 28,000 2nd 2,800 16,200 X 12,500 x 3rd 12.500 17,050 16,350 X X X 163.50 16,350 4th Previous Next